A corporate guarantee supplied between related persons can be taxable even without a fee because related-party supplies made in the course or furtherance of business may be deemed supplies. Rule 28 contains a specific valuation mechanism for qualifying corporate guarantees, subject to its effective dates, wording and exceptions. Guarantees by directors and personal guarantees require separate analysis.
Use the rule effective on the transaction date
This guide is a decision aid. GST rates, exemptions, valuation rules and portal procedures can change through notifications and circulars. Match the exact supply, HSN or SAC, parties, place of supply and invoice date against the current official material.
Do not file from a headline rate alone. Preserve the notification, classification working and transaction documents supporting the treatment selected.
Identify the actual guarantor
Record whether the guarantor is a parent, subsidiary, sister company, director, promoter, individual or bank. Identify the borrower, lender, guaranteed amount, period, renewal and whether a commission is charged.
Why no-fee guarantees may be taxable
Schedule I can deem related-person supplies made in business taxable without consideration. The analysis still requires a real supply, relationship, business purpose and applicable territorial provisions.
1 · IdentifyTransaction facts
2 · ClassifyHSN or SAC
3 · VerifyRate and date
4 · DocumentInvoice and return
Rule 28 valuation
Use the version of Rule 28 in force for the guarantee period. The special formula, actual consideration and specified exclusions must be tested against the instrument. Do not apply a percentage mechanically to every guarantee ever issued.
Time, invoice and recurring periods
Guarantees may span several financial years or be renewed. Document the period to which the valuation relates, issue the required tax document, report it in the correct return and reconcile amendments or releases.
Cross-border guarantees
A guarantee from a foreign related entity to an Indian borrower can involve import-of-service and reverse-charge questions. An Indian guarantor supporting an overseas entity must separately satisfy place-of-supply and export conditions.
Recipient ITC and evidence
The recipient may claim eligible ITC if the guarantee supports taxable business and section 16 conditions are met. Preserve board approvals, facility letters, guarantee deed, related-party mapping, valuation calculation, invoice, payment and tax records.
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Request GST supportFrequently asked questions
Is a free corporate guarantee outside GST?
Not necessarily. A related-party supply can be taxable without consideration.
Does Rule 28 apply to every guarantee?
No. Apply the precise current wording, effective date and exclusions.
Is a director’s personal guarantee the same?
No. It requires separate analysis and may be covered by different clarification or facts.
Can the recipient claim ITC?
Potentially, if the guarantee supports taxable business and all credit conditions are met.
Can a foreign guarantee trigger RCM?
Yes, an import-of-service analysis may result in Indian recipient liability.
Should old periods use today’s rule?
No. Apply the law and valuation rule effective for the relevant period.
